Will proposed amendments to the Victorian Owners Corporations Act affect accommodation businesses? February 22, 2021

Recent proposed amendments to the Owners Corporations Act are positive news for the Victorian accommodation industry

On 16 February 2021, Parliament passed a Bill to amend the Owners Corporations Act 2006 (Vic) (Act). The Bill seeks to implement the outcomes of the consumer property law review which, as part of a wider public review, considered the legislation governing the operations of owners corporations in Victoria.

What are the amendments to the Owners Corporations Act?

The Bill seeks to amend the Act to rationalise the regulation of owners corporations. In doing so, it will cover a vast range of reforms including the introduction of a five-tiered system. This will allow for different regulatory requirements based on the number of occupiable lots that form the owners corporation.

Under the amendments, larger owners corporations (for example, an owners corporation with more than 100 occupiable lots) will be subject to stringent requirements with respect to:

• Committees
• Professional managers
• External audits
• Reviews of annual financial statements
• Building insurance
• Maintenance plans and funds
• Annual financial statements

Smaller owners corporations (for example, an owners corporation of a 2-lot subdivision) will be subject to less onerous regulations.

How will the other amendments impact the Victorian accommodation industry?

The original Bill sought to introduce a new section 67B into the Act which would have restricted developers from entering into any contract (including management agreements) relating to the owners corporation and benefitting the developer, if the term of the contract exceeded three years.

Restricting such contracts to a term of less than 3 years was considered detrimental to new short-stay operations in residential apartment buildings in Victoria. Accommodation industry agencies campaigned to amend this section of the Bill. The accommodation industry voiced its concern that without the security of longer-term tenure, the ongoing functioning of short-stay operations within strata titled buildings would be unworkable, taking into consideration the vast amount of time and capital required to establish such operations.

The accommodation industry’s discussions with the Victorian Government successfully achieved amendments to the Bill, which now excludes “hotel and resort management contracts” from the restrictions imposed in section 67B.

A hotel and resort management contract which relates to a hotel, resort or service apartment complex on land affected by an owners corporation, is defined under the Bill to include:

• A letting agreement to provide an on‑site letting manager (being a manager who lives at the hotel, resort or serviced apartment complex who manages letting of accommodation at the hotel, resort or complex); or
• A common property agreement (including but not limited to a lease or a licence) to use common property for the purposes of:
• Operating an on-site letting business at the hotel, resort or serviced apartment complex (for example, an office, storage area or reception area); or
• Providing caretaking services at the hotel, resort or serviced apartment complex; or
• A building maintenance or facilities management agreement to provide caretaking services at the hotel, resort or serviced apartment complex; or
• Any prescribed agreement or prescribed class of agreement relating to the management of a hotel, resort or serviced apartment complex by a third party.

What do the amendments mean for my business?

While this is a win for the accommodation industry, it should still be noted that provision was made in the Bill to allow the Governor in Council to make regulations in relation to hotel and resort management contracts or classes of such contracts, for example:

• Restricting the duration of hotel and resort management contracts;
• Limiting or placing parameters on fees and charges under those contracts or increase on those fees and charges; and
• prohibiting or regulating the inclusion of specified terms or conditions in those contracts

Nevertheless, the amendments provide security of tenure to short-stay operators and subsequently certainty within the hotel and short-stay accommodation industry.

For further information about the implications of the amendments to the Victorian Owners Corporations Act, please contact our Property Team or our Hotels, Leisure  and Tourism Team.

This article was written by Commercial and Property Lawyer, Evelyn Zeglinas.

DISCLAIMER: We accept no responsibility for any action taken after reading this article. It is intended as a guide only and is not a substitute for the expert legal advice you can receive from marshalls+dent+wilmoth and other relevant experts.